CoreLogic’s latest research paper reveals a promising outlook for Australia’s unit market, as national unit values increased for the first time in 11 months, marking a 0.6% rise over March. This increase was more geographically broad-based compared to the subtle rise observed in Sydney unit values in February, with six of the eight capital cities recording a monthly uptick in unit values.
Sydney led the charge with a 1.0% increase in unit values, followed by Melbourne with a 0.4% lift. Meanwhile, national unit rents continued to grow at approximately double the rate of house rents, with increases of 1.6% and 0.8% over the month and 3.9% and 2.0% over the first quarter, respectively. This stronger rental growth in the medium to high-density sector resulted in the median house and unit rental value gap narrowing from $85 a year ago to $65 in March.
The combined capitals saw their strongest quarterly increase in unit rents on record, with a 4.4% rise over Q1, equating to a $23 per week increase in the average rental value ($550). Among the capital cities, only Darwin experienced a decrease in unit rents over the quarter, with a 0.4% decline. The national unit vacancy rate also reached a new record low of 0.8% in March.
Despite the recent positive shift, there are still challenges ahead for the Australian unit market. The full impact of interest rate rises has yet to be seen, as many fixed-rate loans are only now starting to expire. Additionally, three of Australia’s four major banks predict a further 25 basis point increase in the cash rate in the coming months. Furthermore, while listing levels remain low, they could potentially rise, exerting downward pressure on values if not met with a corresponding increase in demand.
However, the recent rise in unit values could mark the beginning of a slow recovery phase. With inflation seemingly moving past its peak and consumer sentiment climbing from near-record lows, the outlook for the Australian unit market appears increasingly optimistic.